Proposal could double Hollywood films screened in China

China has been reluctant in the past to ease its restrictions and has censored or banned content it deemed offensive, such as Martin Scorsese's 1997 film "Kundun."

China has been reluctant in the past to ease its restrictions and has censored or banned content it deemed offensive, such as Martin Scorsese's 1997 film "Kundun." (Mario Tursi / Touchstone Pictures)

Richard VerrierLos Angeles Times Staff Writer

Hollywood's chief lobbying arm and federal trade officials are laying the groundwork for negotiations with China that could substantially increase the number of American films allowed in the country -- a long-sought goal of the major studios.

Representatives of the Motion Picture Assn. of America and the Office of the U.S. Trade Representative have been working on crafting a compromise in a long-running trade dispute with China, which has had a rocky history with Hollywood but has become an increasingly vital market for the media conglomerates.

China allows only about 20 foreign films into the country each year under a revenue sharing agreement in which studios collect less than 20% of box-office revenue, compared with more than twice that in the U.S. and other international markets. Under one scenario being discussed, China would expand the revenue sharing quota to as much as 40 foreign films per year, said three people familiar with the matter who asked not to be identified because the talks are confidential.

In addition, under the proposed plan China would agree to provide greater market access to Hollywood by allowing an additional company to distribute foreign films. Currently, government-controlled China Film Group dominates the import of foreign movies into China.

It's unclear, however, when or whether a deal will be reached with the Chinese government. Officials with the U.S. Trade Representative and the MPAA declined to comment.

Newly minted MPAA Chief Executive Christopher J. Dodd, the former U.S. Senator (D-Conn.) who is seeking to elevate the association's profile in Washington, has made opening doors in China one of his top priorities since assuming the job two months ago. He plans a trip to the Shanghai International Film Festival in June in an effort to build relations with film officials there.

"You don't want to go in and start bellowing,'' Dodd said in an interview with The Times in March. "You're not going to get anywhere with that approach."

The efforts come as pressure mounts on China to comply with a World Trade Organization ruling in 2009. In a decision hailed as a big victory for the U.S. entertainment industry, the WTO ruled that China had violated international trade rules by restricting imports of foreign movies and other media.

In a recent report to the WTO, China said it disagreed with the ruling, which stemmed from a complaint the U.S. filed with the world body in 2007, but was willing to comply.

"China hopes relevant WTO members understand the difficult and complicated situation China is facing during the process of implementation," China officials said in a letter to the WTO. "China believes that this matter will be resolved properly through joint efforts and mutual cooperation."

But China did not meet a March 19 deadline to comply with the ruling.

With ticket sales and attendance waning in the U.S., Hollywood sees great growth potential in China with its population of more than 1.3 billion.

China ranked No. 6 in global box-office revenue last year, according to Screen Digest. That made Asia Pacific one of the fastest-growing regions for ticket sales in 2010, according to a recent MPAA report. In a sign of China's mounting importance to Hollywood, Canadian-based large screen company Imax Corp. recently signed a joint venture with China's largest theater operator to open 75 theaters in the country over the next few years.

The rapid growth of the theater industry in China has made the market that much more appealing to studios, which can generate $20 million to $40 million in ticket sales per film in the country, compared with about $1 million a decade ago. Popular movies released in China include blockbusters "Avatar," "Alice in Wonderland" and "Harry Potter and the Deathly Hallows: Part 1."

Although most studios would prefer to see the current quota eliminated entirely, doubling the number of foreign movies in China would be a significant advancement, said Patty Mayer, an entertainment industry attorney who has worked with the MPAA. "Anything they can do to open the market would be fantastic," Mayer said.

The country's tight restriction on foreign films has long been a source of frustration for studio executives, who contend that it fosters rampant piracy. The U.S. Trade Representative recently included China among a dozen countries on its "priority watch list" for not doing enough to combat theft of intellectual property.

China has been reluctant in the past to ease its restrictions and has censored or banned content it deemed offensive, such as Martin Scorsese's 1997 film "Kundun."

But the rapid growth of China's own theater industry -- with the number of screens expected to double in the next five years -- could make the government more motivated to ease the restrictions, analysts say.

"What we've seen is the multiplexing of China," said Larry Gleason, former head of distribution for MGM. "There are many more screens to fill, therefore there is more of a need for product. That suggests there is a likelihood the cap on the number of films allowed into the marketplace should increase."